European carbon ruling

14 November 2007

A European court has annulled a European Commission (EC) prohibition on last minute carbon trading adjustments.

The EC decision prohibited adjustments to the amount of carbon permits member states allocate to companies during the 2005 to 2007 emissions trading period.

The adjustments allow specific cases of reductions in an installation’s allowances, effectively allowing changes after a permit has been set and trading rounds have started.

Germany sought to gain a right to withdraw permits if it thought that a company had an allocation that was too high; the withdrawn allocation could then be used later by other companies.

But the EC denied Germany's request in a 2004 decision because it felt the readjustments would create uncertainty in the carbon market and discourage investment.

In a decision on 7 November, the Court of First Instance said the EC misconstrued certain allocation criteria in the emissions trading scheme by treating the so-called ex-post adjustments as "contrary to the directive's general system".

The court stated: "The mere fact that the ex-post adjustments at issue are liable to deter operators from reducing their production volume, and therefore their emission rates, is not sufficient to call into question the adjustments' legality in light of the directive's objectives.”

For the moment, the impact of the decision on the 2008 to 2012 emissions trading period remains uncertain.

Germany has not tried to include a permit readjustment system in its plan for the 2008 to 2012 trading period, but 13 other states have asked for this provision. The EC rejected the requests from the 13 member states.

Marine routes present the greatest challenge, with long diversions commonplace

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